Month: December 2016

A while ago, I read an excellent book called The Lean Startup by Eric Ries. The Lean Startup describes a new approach for startups, using concepts like building a minimum viable product (or MVP) as soon as possible, innovation accounting, pivots and more. It’s based on lean manufacturing, a production process pioneered by companies such as Toyota and Ford. A highly interesting read if you are interested in starting your own business.

The book also details the use of 5 Whys, a technique to explore cause and effect relationships when particular problems are faced. Its primary goal is to find the root cause of an issue, by repeating the question “Why?” five times. Each answer forms the basis for the next question. It takes about 5 iterations on average to get to the root cause of the problem.

Why was there an overload? The bearing was not sufficiently lubricated.

Why was it not lubricated sufficiently? The lubrication pump was not pumping sufficiently.

Why was it not pumping sufficiently? The shaft of the pump was worn and rattling.

Why was the shaft worn out? There was no strainer attached and metal scrap got in.

The root cause was that there was no strainer attached. If you didn’t ask the 5 whys, you might not ever fix that problem, but instead just try to patch up the resulting issues it caused. The idea is that you make proportional investments to fix each of the 5 whys. This way, the total investment in time fixing the issue won’t be too big but you should still see valuable improvements afterwards.

The more you immerse yourself into trading, the more you’ll discover that the biggest road blocks you’ll encounter have their origins in human behaviour. Trading psychology, emotions, personal development and discipline, to name a few. And while there are plenty of great books on trading psychology, I often enjoy taking a broader view and seeing what I can learn from non-trading books.

The more that you read, the more things you will know. The more that you learn, the more places you’ll go.

– Dr. Seuss

To give you an example: while trading, I found it really helpful to be aware of cognitive biases related to losing (e.g. prospect theory and loss aversion), which is described extensively in Daniel Kahneman’s masterpiece; Thinking, Fast and Slow. To approach a certain trading issue from an outside perspective like this can be tremendously helpful.

I’ve been trading for almost 10 years now. Over the years, I’ve spoken to many traders who are on the verge of making it. Almost there.

Technicals or fundamentals knowledge, check.

Willingness to be consistently profitable, double check.

Still.

These traders are about 80% in their journey to become a consistently profitable trader. Even here, the Pareto principle is doing its magic.

They’re like a semi-pro football player almost making it to the Champion’s League. Or the aspiring actor trying to get that big breakthrough role. The trader is missing some essential, but not always obvious elements, and here’s the thing: without proper guidance, some of these traders will be stuck in this state forever. If nothing changes, the next step is gradually losing money and/or giving up.
Which is a shame. These are the traders that have put in considerable effort already, but are somehow missing that something to pull them over the edge of consistency. Do you recognise yourself in this profile? Keep reading. See, once you are at this level, it’s not about knowing how to draw a trend line. It’s not about chart patterns and price action. Most traders in this state of limbo usually even have some trading system.

Once you’ve been trading for a while, you might have come across forex tick charts. The tick charts are usually accompanied by some explanation on why they’re so much better than traditional candlestick charts.

They’re not. Not for spot forex traders at least.

In fact, I’ll make the case on why you should not use them, as they hardly contain accurate information. I’ll tell you why in a moment, but let’s first take a step back and explain what tick charts are.

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